Power Sheet – March 23, 2016


In a familiar ritual, all eyes will be on the Fed next month to see if it raises interest rates, after Atlanta Federal Reserve Bank president Dennis Lockhart said he thought conditions looked favorable for an increase. But hold on—let’s take two steps back and ask why markets are so obsessed with the Fed’s potential quarter-point moves, and while we’re at it, why the U.S. economy is still growing slowly and why employment isn’t nearly as strong as the 4.9% unemployment rate makes it look. And lest you wonder where I’m going with this, the answer is that leadership failures are the explanation.

Produced by Ryan Derousseau

We’re all fixated on the Fed because monetary policy has become, as Mohamed El-Erian says, the only game in town. (That’s the title of his new book.) Governments worldwide have decided that printing money and cutting rates is the pain-free path to economic growth, except it isn’t working. Monetary policy has never been more than a temporary fix, and after eight years it has long since run out its string. It isn’t working anymore because it can’t.

So what’s the solution? It’s a range of government policies that have always been the foundation of a growing economy but that Washington has been utterly unable to enact. That’s the critical leadership failure, and that failure is why monetary policy is the only game in town, and why the economy remains weak. For example, everyone in both parties knows the economy would benefit substantially if U.S. companies could bring back some of the $2 trillion they hold overseas and invest it here. But tax law makes such a move economically crazy for them. Fixing the law would require a broad rewrite of the tax code, which is more than Washington leaders can even approach. So it doesn’t happen, and the trillions stay overseas.

How about something much simpler, like enacting a federal budget? We used to do that regularly. Not anymore. The odds don’t look good for this year, even though President Obama and then-House Speaker John Boehner made a budget deal last fall. The reasons for continued inaction are insanely convoluted, but the bottom line is that the government may well be funded by continuing resolutions, short-term funding measures for individual programs or departments. Result: No one affected by the budget, including many businesses, can make long-term plans—another block to investment.

There’s so much more. Free trade is good for the economy, but one thing Donald Trump and Hillary Clinton agree on is that the Trans-Pacific Partnership is an abomination that must be killed, so its chances of ratification, at least pre-election, have shrunk to zero. Finding money for badly needed infrastructure, at a time when the Treasury can borrow money at the lowest rates in history, would seem a no-brainer. But too much of such funding ends up in boondoggles like Alaska’s bridge to nowhere or Pennsylvania’s John Murtha Airport (now called “the airport to nowhere”). The futility of attempting immigration reform is obvious as soon as you say the words.

Those are some of the policy fixes that help an economy grow, but for now they all look impossibly distant. That’s why the Fed is the only policymaker left to watch and why the public has actually said it likes colonoscopies better than Congress. It’s a non-partisan issue. At least for now, the critical mass of leadership just isn’t there.

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What We're Reading Today

One Brussels suspect arrested  

According to reports out of Belgium, a third attacker thought to be named Najim Laachraoui has been arrested by Belgian authorities. The two other assailants were suicide bombers and have been identified as brothers Khalid and Brahim el-Bakraoui. The two men were known to Belgian authorities. BBC

Trump, Clinton take Arizona but...

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Starbucks to donate unsold food

Howard Schultz's company is teaming up with the Food Donation Connection and Feeding America to donate unused food in the U.S. This is expected to bring an estimated 5 million meals to the nation's hungry over the first year. Starbucks had long donated some of its food, but it hadn't devised a way to deliver perishable goods. Now, the FDC will pick up the food, while Feeding America will distribute the goods. Fortune

Brazil President: "I will never resign" 

Despite ongoing impeachment proceedings and an investigation into corruption at the state-run oil company, Petrobras, which has embroiled her inner circle, President Dilma Rousseff said that she has not committed a crime.  She also called the impeachment proceedings a coup attempt. The call for Rousseff to step down by opposition party members and millions of Brazilians have come as the scandal has taken focus away from the worst recession Brazil has faced in decades. Reuters

Building a Better Leader

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About a third of the gender pay gap...

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Feeling stressed?

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The downside for Apple as the FBI steps back 

While Apple and Tim Cook are likely thrilled to hear that the FBI has turned to a third-party source to hack the iPhone of one of the San Bernardino shooters, it also means there's a security gap that Apple may not have known about. And unlike other tech firms, Cook hasn't instituted a hacker policy to pay third-parties for providing information on holes they find. This leaves hackers with little incentive to hand over the blueprint. WSJ

Merck wins multi-billion dollar patent dispute with Gilead Sciences 

Kenneth Frazier's Merck sued Gilead for including an active ingredient, sofosbuvir, in two of Gilead's blockbuster Hepatitis C drugs. The two drugs—Sovaldi and Harvoni—brought in over $19 billion last year for Gilead. Merck claimed the use of sofosbuvir was protected under its patent. Earlier this year, Merck's own Hep-C drug was approved by the U.S., which it has priced under Harvoni, creating a race to secure sales. ABC News

Amazon sues new Target executive

The online retailer has filed suit against Arthur Valdez, trying to prevent him from starting his new job at Target. Valdez worked for Amazon for 16 years, but Jeff Bezos' company says that an agreement Valdez signed in 2012 prevents him from working with a competitor for 18 months after leaving. Amazon claims Valdez would use confidential information about its own supply chain in his role at Target. Amazon did not name Target in the suit. Fortune

Up or Out

Snapchat hired Ali Rana as head of its audience and brand solutions and Gunnard Johnson as head of quantitative ads research.  Fortune

Fortune Reads and Videos

Google expands Android Pay to the UK

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Here's how Facebook is expanding Facebook Live

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Jeb Bush just endorsed Ted Cruz

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Sarah Palin signs deal to become a TV judge 

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Quote of the Day

"The enormous size of the verdict is chilling to Gawker Media and other publishers with a tabloid streak, but it is also a flag to higher courts that this case went wildly off the rails." — Nick Denton, founder of Gawker Media, discussing the verdict in its civil case against Hulk Hogan. A jury awarded Hogan $140 million due to a privacy breach by publishing a sex tape that included Hogan.  Fortune

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